Xcel Energy has won approval for a pilot program featuring electricity rates that will vary by time of day, an attempt to shift energy use to off-peak hours when the grid is less stressed.

The two-year "time-of-use" pilot program is scheduled to be rolled out in early 2020 to about 10,000 Xcel customers in two Twin Cities locations. Xcel last fall proposed the program, and it was approved Thursday by all five members of the Minnesota Public Utilities Commission (PUC).

Xcel's time-of-use pilot has broad support, ranging from clean-energy and consumer-advocacy groups to the Minnesota Department of Commerce and the attorney general's office, both of which look out for the public interest in matters before the PUC.

While there's some disagreement over the program's details, all parties see time-of-use rates as a way to use the grid more cost efficiently, lessening the need for investments such as power plants used only at peak times.

Time-of-use rates are taking root in other states, too, and Xcel is running a pilot in Colorado, its biggest market alongside Minnesota.

Under Xcel's Minnesota pilot program, from 3 to 8 p.m. weekdays — considered peak-demand time — the average monthly electricity rate would be 92 percent higher than under Xcel's current standard rate. From the "off-peak" hours of midnight to 6 a.m., rates would be 54 percent below the standard rate. During all other hours — dubbed "mid-peak" — rates would be 11 percent lower.

Clean-energy and consumer-advocacy groups lobbied for a peak time of 2 to 6 p.m., rather than 3 to 8.

"People can use energy intensive appliances such as washing machines, dishwashers, air conditioners and other larger appliances at off-peak times and see the benefit of lower-priced energy," Xcel said in a statement.

Minneapolis-based Xcel, the state's largest utility, said it expects that customers will save money if they shift usage to off-peak hours.

However, customers' bills could rise if they don't shift their energy usage with electricity prices. Xcel said it will mitigate higher bills to a certain extent.

If a customer's bill during the pilot's first year exceeds what it would have been under the standard rate by 10 percent, Xcel would give credits for any amount beyond that 10 percent.

Xcel's time-of-use pilot is planned for roughly 5,000 customers in the "Hiawatha West/Midtown" area of Minneapolis and 5,000 customers in the Westgate area of Eden Prairie. The pilot is an "opt-out" program, meaning customers will be automatically enrolled but they can choose to leave it.

Xcel will provide new meters for the program, which uses an advanced metering technology.

The pilot program is expected to cost Xcel $11 million. However, the PUC's approval Thursday didn't include how Xcel will recover those costs, a decision to come later.

The time-of-use program will be "revenue neutral" for Xcel, the company said. It's aimed at lowering costs for the utility's entire system. With time-of-use rates, there could be less reliance on so-called "peaker" plants, which use fossil fuels and tend to be a high-cost source of electricity.

Also, by pushing energy usage into off-peak hours, Xcel can take more advantage of low-cost wind power, which tends to be most plentiful at night and in the early morning hours.

Mike Hughlett • 612-673-7003